The new year may mean a major change in your credit score.
As of July 2017, there are new rules on how your credit score is reported in the new year. Your credit score is what banks review when deciding to grant you a loan or credit card. This will come as good news to some and a bit of a wake up call to others, depending on your payment history.
The New Law
According to the federal government, credit reports must now include at least 40 percent of your positive credit history. This includes paying back a loan or mortgage on time and keeping up with the payments of your credit cards.
In the past, credit scores reported only defaults. This forces lenders to determine your likelihood of repaying a loan based solely on your mistakes. They will still have the negative data but also 40 percent of all the times you paid your bills on time in the last 24 months.
What it means for you
You have more control over the data lenders receive about your credit history. Because banks will now see it all, you can count on your positive decisions being reflected in your credit score.
It will make it potentially easier for first home buyers who don’t have a long credit history to get financed, where otherwise they may have been declined. However, this could mean some changes if you’re a younger Australian with some financial mistakes. It could mean not being able to borrow until you have at least two years of good credit history.
How to earn a good score
I suggest to actively keep track of your credit score and making it a priority to start building a good history.
Lenders like to see you…
- Pay all their bills on time
- Borrowing only as much as you can manage to pay back
- Limiting the number of credit applications you have open at one time
This new reporting system can be a game changer for both homeowners as well as first home buyers depending on your credit history. If you have any questions about your credit score or want to know how how potential lenders read it, contact us for a consultation.